The Google stock (NASDAQ:GOOG) trades now at about $888.18 / share. And to get the best market prices you might want to trade as the pros in round trading lots, which is 100 shares at the time. Which means that the minimum order size to get a good execution when trading Google is 100 shares at $888.18/share or roughly $88,818.00 (yes eighty-eight thousand something dollars). At the same time if you have bought Google shares you will only get paid with the increase in the stock price, as Google does not pay dividends!So if you want to invest in Google in the same conditions as an institutional investor you should commit $88,818.00 on one single position for an investment in a something that does not pay out cash in dividends or interest payments. This is something that most private investor will simply never do! But at the same time Google remains a fantastic company with a huge growth potential. Actually the Google stock price went up +25% since the beginning of the year 2013 and when you look at their annual report you see so great figures that you think that this stock has a lot more to give.So it is temping to buy 100 shares of Google but you probably do not want to put $88,818.00 on the table. What if we told you that you can get exactly the same position as holding 100 Google shares but with committing only $30.00 dollars instead of $88,810.00 ? That you can do with options! And here is how : you should buy a 890CALL option and sell a 890PUT option on Google.

A synthetic option position to replicate the payoff of the Google stock in December

Buying a 890CALL option expiring in december will give you the right to buy on the 3rd friday of december 100 shares of Google at price of $890,00 per share. So this right will be worth all the upside between the future share price and $890 in december and 0 if Google's share price ends up below $890. At maturity of the option your "long call" position will have then following payoff diagram, depending on the price of Google:

Selling a 890PUT option expiring in december will give someone else the right to sell you on the 3rd friday of december 100 shares of Google at price of $890,00 per share. So this right will be worth all the downside between the future share price and $890 in december and 0 if Google's share price ends up below $890. At maturity of the option your "short put" position will have then following payoff diagram, depending on the price of Google:

If you both go into a Long Call position and a Short Put positon you will have the following payoff diagram at maturity of the options, which is exactly the same payoff as if you buy today 100 shares of Google.

The cost of entering this position is extremely low

You can see in the diagram below the current market prices of option chains for Google with maturity in december. With this diagram you see the actual cost of entering the position described above. In order to enter the position you will combine 2 trading operations:1- buy one 890 Call Option for $38.40/share, as option contracts are traded in lots of 100s you would need to cash out $3,840.00 for this single Call2- sell one 890 PUT Option for $38.10/share, again as option contracts are traded in lots of 100s you will receive $3,810.00 for this single Put

Your net cash outflow will be extremely low: $3,840 - $3,810 = $30 !

To wrap it up: leverage is the magic of options

Buying a 890CALL and selling a 890PUT on Google will require you to invest a total of $30.00 and this will grant you exactly the same payoff in december 2013 as if you buy 100 shares of Google for a total of $88,810.00. So using option you can invest only $30 and still get a market position which is 3000 times bigger than your initial investment. This is the magic of options and it is called leverage: with a very little investment you can generate a very large return.